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ASIA A gift from China and the big game after the Games

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China does not celebrate Christmas on anything like the scale of the West, but it gave the world a festive gift nonetheless in December another serious attempt to reduce the amount of metal leaving its shores. Whether that's the kind of gift that everyone would enjoy finding under the Christmas tree is something that should become clearer as the year wears on.

As global markets were closing down for the holiday period, the Chinese government said Dec. 21 that it would increase export taxes on a range of metal products and commodities effective Jan. 1, 2008. Among the products hit were steel slab, billet, wire rod, tinplate and some stainless products, as well as many ferroalloys and some minor metals.

The adjustments didn't come as a big surprise, despite the government's continuing tendency to announce these kind of changes when it thinks the world might not be looking. Pressure has been mounting on China to curb its export surplus, and steel has been one of the main products targeted by other countries. The government also has a vested interest in cutting exports as it seeks to get its rampant energy use and subsequent pollution under control. The recent appreciation of the Chinese currency suggests that Beijing is less concerned than it once was about the impact that such measures could have on its export-dependent economy.

Will the export tax changes actually make a difference? For many in the North American steel market, things were already headed in the right direction China's steel exports worldwide had fallen to just 2.9 million tonnes in November from a peak of 7.2 million tonnes last April, according to official statistics. That level is still unacceptable to many, of course, but it's clear that growing Chinese demand and the falling U.S. dollar, among other things, have already worked to reduce exports. New taxes look likely to accelerate that process.

The Chinese government gave its domestic consumers something to cheer about by cutting import taxes on some nonferrous products, including alumina and refined copper. This should help bring down the cost of the fabricated products that China is increasingly looking to manufacture as it adds value to its economy. Metal producers, and some traders, might not be as thrilled, given fears that the measures could lead to oversupply and falling prices. But for many in the developed world, the tax changes represent another step in the right direction for the Chinese economy.

* * * * * *

China's spring festival—better known as the Chinese New Year—falls in early February this year. It brings to an end the year of the Golden Pig, which was seen as particularly lucky, and ushers in the year of the Rat. Despite presenting something of an image problem in many cultures, the year of the Rat is seen as auspicious in China, particularly in terms of hard work and ambition. Those are two attributes that the modern China has in abundance, and they look set to be showcased as never before when Beijing hosts the 2008 Olympic Games, which gets under way Aug. 8. Eight is a particularly lucky number in China, and the eighth day of the eighth month is seen as the best possible starting date for what could be one of the most important events in China's recent history.

But for China's metal industries, the Olympics may be something of a non-event. The Games often are spoken about as an integral part of China's economic growth, as if the country would not be expanding at this pace if Beijing hadn't won the right to host them. Some analysts have suggested that China's economy might start to slow once the rush of stadium construction and infrastructure building ends.

That's unlikely to happen. The vast majority of China's 1.3 billion people still lack basic amenities, including modern housing, that are taken for granted in most developed nations. The country's population will be glued to television sets for the duration of the Games, but most of those TVs will be in communal areas, not private homes. Chinese citizens want their own TVs—not to mention washing machines, cars, refrigerators and other modern goods—as much as anyone else does. China's great achievement of the past 25 years is that several hundred million of its people already have them; its great challenge is to manage the expectations of the other billion or so who have seen how material goods can enrich their lives.

For that reason, economic growth won't cease following the Olympics, and millions of tons of steel, copper and other metals will still be consumed in China every year. The danger for the Chinese economy is not any fall-off in underlying demand, but rather that the government will wait until the Games are over to take hard action to bring its economic growth back under control. Some analysts think a new clampdown could be needed to ensure the long-term sustainability of the country's rise. It's the success of any such measures, not the Olympics, that will play the biggest role in determining China's future.

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